Income Tax Exemptions
There are a number of great ways to save taxes. You need to make use of the tax-saving instruments wisely, in order to minimize your tax payments. There are several income tax exemptions available under the income tax act and here we will discuss all of the same.
Allowances Exempted as per Income Tax Act Section 10
House Rent Allowance (HRA)
There are people who relocate from one city to another in order to seek new job opportunities. For instance, IT professionals from all parts of the country need to relocate to metro cities such as Bangalore, Delhi, Pune etc as these are the only cities that offer jobs to IT professionals. Consequently, they need to rent an accommodation.
They have no choice other than renting an apartment as their duty demands this. One cannot avoid this expense even if they wish, as this is a job requirement. As a result, the rent paid by the user is exempted from taxes by the India Government. On the other hand, the employer needs to give house rent allowance.
A minimum of the following is the income tax exemption that one gets from the House Rent Allowance:
- HRA received.
- If rent is less than 10% of the income
- 40% of the income and 50% in metropolitan cities.
In such cases, the salary is equal to the basic sum inclusive of the dearness allowance (basic + DA).
Allowance on Transportation
You spend some money in order to commute from your house to your workplace. This is an expenditure that you cannot avoid even if you want to. Consequently, transport allowances are exempted from being subject to income tax by the Indian Government, if your employer provides you with an allowance for commuting which is known as the transport allowance. For this, you do not need to provide any receipt of the expenditure that you make on commuting to the office. On the other hand, Rs 1600 is the monthly income which needs to be paid.
Children Education Allowance
Children Education Allowance is another form of expenditure on which income tax exemption is applicable. This benefit is given by the employer to their employees so that they can make use of them in order to get the income tax exemptions. The monthly limit of this plan is Rs. 100, only for 2 children.
Subsidy on Hostel Facility
Hostel Subsidy is a type of income tax exemption which is connected to children’s education policy. This subsidy is received up to Rs. 300 on a monthly basis, only for two children.
Added Allowance that Can Get Tax Benefit as Income Tax Exemptions:-
- High Altitude Allowance
- Special Compensatory Allowance
- Counter Insurgency Allowance
- Island duty allowance
- Allowances applicable to North East
- High Active Field Area Allowance
- Compensatory Field Area Allowance
- Tribal allowance
- Uniform Allowance, etc.
The allowances mentioned above are tax-free, but make sure that you submit the genuine proof of the expense.
Income Tax Exemption on Housing Loan
This type of income tax exemption is applicable because you need to change your place due to the job. After relocating you might opt to purchase a house on loan rather than renting one. In case of a home loan, the payment of interest is exempted from tax. This helps the person to get a maximum income tax exemption for about Rs 2 Lakh on interest levied on housing loan.
On top of this, there are certain conditions that are applicable to this type of income tax exemption. One of them is that the house needs to be occupied by the owner. This exemption is applicable only if your house is still under construction. But the construction is must be completed within a time span of 3 years.
Government wishes to encourage some types of expenses and investments. In order to realize this goal, it has given the advantage of income tax exemption. Subsequently, we have several investments as well as expenses offered by section 80C, 80CCC and 80CCD. On the other hand, the total deduction in this section is only up to Rs 1.5 Lakh.
- Employee Provident Fund
- Pension/ Annuity Schemes
- Life insurance premium
- Tax Saving mutual fund (ELSS)
- Home loan principal payment
- Sukanya Samriddhi Account
- Tuition fees for children
- PPF Account Contribution
- National Saving Certificate
- Tax-saving fixed Deposit
- Post office time deposits
Income Tax Act: Deductions mentioned below Chapter VIA
Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)
RGESS scheme entitles the policyholder to save extra tax. To get leverage from this advantage, you need to be investing your money in the share market for the first time. Moreover, the annual income needs to be less than Rs 10 Lakh. Therefore, you can invest around Rs 50,000 in this scheme
The income tax exemption is applicable to 50% of the investments you make. Therefore, if the person invests around Rs 50,000, then the tax deduction will be of Rs 25,000 only.
Section 80D: Medical Insurance Deduction
This scheme is a good opportunity that helps an individual save tax for an income that exceeds 1.5 Lakh. Thus, everyone must use this golden opportunity to save tax. Though the income tax slab has not changed, the limit under section 80D was increased. This is described in Section 80D. As per section 80D, the income tax exemption is applicable for those who have taken a medical insurance for themselves, family as well as their parents.
Section 80DD: Income Tax Exemption for Maintenance of Disable Dependent
This section offers an additional income tax exemption of about Rs 50,000. Following are the conditions that you need to fulfil in order to avail the benefits of this section:
- You must be the guardian of a differently abled individual. That person can be physically or mentally disabled.
- You have to give a certificate from an authorized medical practitioner.
- All the expense arising from the rehabilitation, training treatment, and nursing.
Therefore, any amount deposited under any scheme taken for the differently abled dependent will be entitled to income tax exemption. Deductions of about Rs 1, 00,000 can be claimed if the dependent is suffering from any severe disability.
Section 80DDB: Serious Ailment Deduction
This deduction is primarily for those who need to get treatment for serious disease. As per this section, a person can avail a deduction of Rs 40,000 against their income tax.
- The deduction is applicable to the expenditure made to treat a disease of self or someone dependent.
- There is a prescribed list of diseases that are covered.
- The expense made should be real. Reimbursements of claims get subtracted.
- Certificate for the illness must be from a government doctor.
- 80,000 is the deduction limit for senior citizens.
Section 80E: Deduction on Loan for Higher Studies
Similar to the home loan interest, income tax exemptions can also be claimed for interest on education loans.
- An education loan can be taken from any financial institution.
- The tax deduction can be availed for up to 7 years.
- The advantage of this facility can be utilized only in case of higher education.
- The benefit can be utilized only for the person or his spouse/children. Even the legal guardian of the scholar can reap the benefit of income tax exemption.
Section 80G: Deduction for Donations
The donations mentioned in Section 80G are entitled to income tax exemption. The deductions vary depending on the kind of receiver, which means that it may be 100% or 50% of the donation made.
Section 80GG: Deduction on House Rent Paid
Employees who are unable to leverage allowance for house rent are eligible for this deduction from their company. As per the specified rules, these people are eligible for this income tax exemption if the exemption is lower of
- Rent is less than 10% of salary
- 5000 per month, i.e. Maximum Deduction is 60,000.
- 25% of the whole income
There are a few clauses to receive this benefit.
- The employer or his partner or minor child must not possess an accommodation in the city they are working in.
- House rent allowance (HRA) must not be provided by the employee.
- The employee must not possess any self-occupied residential location in any place.
Section 80TTA: Saving Account Interest Deduction
If the yearly taxable income is less than Rs 10,000, then the interest received on the saving account is not counted in the taxable income.
Section 80U: Deduction for Disabled
As per section 80U, anyone suffering from a disability is eligible to get an extra income tax exemption from their taxable income. In such cases, Rs 50,000 can be deducted from their taxable income. Moreover, in the case of severe disabilities, the deductions can even be Rs 1, 00,000. To get the benefits from this deduction, one needs to get a certificate from a doctor who works in a government hospital.
Section 80GGA: This section is for the donations made in case of rural development or scientific research
Section 80GGC: Income tax exemptions that are made in case one contributes to any political parties
Section 80QQB: Deductions in case of Royalty Income earned from a patent. In such cases Rs. 3, 00,000 is the maximum deduction made.
Section 80RRB: In the case of royalty earned by writers (excluding the writer of textbooks), Rs. 3, 00,000 is the maximum income tax exemption provided.
Income Tax Exemption FAQs:
1. How does the Income Tax Exemption work?
Ans: Tax exemption is the fiscal exclusion, which lowers the taxable income. A wholesome relief from deceased tax rates or tax can be availed or the tax will be levied for a particular portion. Hence, tax exemption is important to a general rule than the absence of taxation in some conditions. People are given tax exemptions as it boosts some economic activities.
2. What is Section 80G of the Income Tax Act, 1961?
Ans: Section 80G of the Income Tax Act, 1961 covers the contributions made by an individual to some charitable institutions or organisations, NOGs, NPOs, etc. Nevertheless, not all the donations you make are eligible under Section 80G.
3. What are the benefits of Tax Exemption?
Ans: Tax Exemption Act was revised and was effective April 1, 2017. According to this revision, donations exceeding Rs. 500 to an NGO will be eligible for tax exemption of 50 per cent under Section 80G of the Income Tax Act, 1961. If you contribute to NGO, you’ll offer aid to feed school kids and also aid yourself with a benefit of a tax deduction.
You can calculate exemption by subtracting the donated sum from your taxable income. For example, if your taxable salary is Rs. 200, 000 per year and you donate Rs. 5,000, your net taxable salary will be Rs. 197, 500. Your tax will be evaluated on the new sum depending on the prevailing tax rates.
4. What is the minimum sum that I can donate to avail tax exemption?
Ans: You need to donate at least Rs. 500 in order to avail tax exemption under Section 80G of the IT Act, 1961.
5. Do NGOs issue tax receipts?
Ans: Yes, on making a donation, the charitable organisation gives you a receipt for the same.
6. Can I avail tax exemption on cash donation also?
Ans: Yes, you can avail tax exemption on cash donations below Rs. 2,000. Cash donations exceeding Rs. 2, 000 are not applicable to the 80G certificate.
7.When can I receive a tax exemption certificate?
Ans: You can receive the tax exemption certificate within 6 days from the donation date made via online. However, if the certificate is sent by post it might take more than 6 days to reach you.
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